Carriers' Fight for Market Share Raises Concerns About Costs
Longtime partners Alaska Air Group Inc. ALK +0.89% and Delta Air Lines Inc.DAL +0.08% are slugging it out in a battle for Seattle that is turning into one of the U.S. airline industry's nastiest turf wars in years.

Delta, the No. 3 U.S. airline by traffic, and Alaska Air Group's Alaska Airlines are going head to head, pouring money into improvements at Seattle-Tacoma International Airport and touting their civic credentials as they fight for market share.

The contest alarms some investors, who fear a big buildup of flights at the airport would put pressure on profits, particularly for smaller Alaska Airlines, the sixth-largest U.S. carrier.

Delta, which has worked for the past year to expand Seattle into a hub, has added flights to London, Shanghai, Tokyo, Seoul and Hong Kong, and dozens of domestic flights to feed those services. By December, Delta expects to offer 95 flights to 33 destinations from Seattle, which it also considers its gateway to Asia. In the third quarter, the airline expects to be Sea-Tac's biggest revenue producer.

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That's a position long held by Alaska Airlines. The carrier—which has 285 flights a day from Seattle to 72 destinations, all in North America—controls nearly half the traffic from its home airport and has been adding flights to Hawaii and the eastern U.S. at a rapid clip. It recently said it plans to increase its nonstop flights out of Seattle by 11% come next spring.

Their competing expansions mean the two airlines now are overlapping on core routes from Seattle to cities such as San Francisco; Los Angeles; Anchorage, Alaska; San Diego and Las Vegas. Alaska Airlines has tried to counter Delta's push by adding service to U.S. cities that Delta doesn't serve nonstop from Seattle, such as New Orleans, Baltimore and Albuquerque, N.M.

It also delivered a jab by launching a raft of new flights out of Salt Lake City, one of Delta's smaller hubs.

The two carriers, meanwhile, are battling for the loyalties of Seattleites. Delta has been throwing lavish send-offs for its new Asian flights, and recently dispatched its chief executive for a visit. Last September the big carrier unseated Alaska Airlines as the official airline of the Seattle Seahawks football team.

Alaska Airlines responded by hiring Seahawks quarterback Russell Wilson as its "chief football officer." More recently the airline made a video for local consumption that stresses its roots in the Pacific Northwest, its all- BoeingBA +0.41% fleet and its commitment to the region's economy.

Such feuds over market share have become rare in recent years, after four megamergers that have helped to stabilize the airline industry. The Seattle battle is especially unusual because it flies in the face of a decadeslong code-sharing and frequent-flier alliance between Alaska Airlines and Northwest Airlines, which Delta acquired in 2008.

The two carriers still sell seats on some of each other's flights, and passengers can receive mileage credit on either carrier. Until recently, they mostly stayed out of each other's way.

The Seattle capacity buildup—along with aggressive pricing and double-miles incentives for frequent fliers on both sides—is raising investor concerns, even though both airlines are highly profitable.

Alaska Airlines Group shares have gained around 30% this year, but Joseph DeNardi, airline analyst at Stifel, Nicolaus & Co., estimates their price would be 25% higher if not for the growing threat Delta poses to its Seattle operations.

Hunter Keay, of Wolfe Research Co., said he expects Delta's efforts in Seattle to fail. He said Delta should revisit its Asian strategy with its partner Korean Air Lines Co.003490.SE +1.53% , "rather than pursuing what we view as a misguided attempt to organically create a hub in Seattle while picking a fight with Alaska, an established force there."

But Atlanta-based Delta has become disenchanted with its current Asian hub, at Tokyo's Narita International Airport. Not only has Japan's importance waned as China's air traffic has boomed, but Delta lacks a Japanese airline partner to feed its flights there, and Narita is losing business to an airport closer to downtown Tokyo.

Seattle, the 15th busiest U.S. airport, with 17.4 million passengers boarded last year, was Delta's best option on the West Coast. But the carrier has built up its own feeder operations there, rather than deepen its relationship with Alaska Airlines.

Glen Hauenstein, Delta's chief revenue officer, thinks Seattle is big enough for both carriers. "I don't think anybody gets to claim anything in the business world as theirs," he said in an interview. "Clearly we'll serve some of the same cities but we serve a different spectrum of the market. They're a giant superregional. We're a global carrier."

Alaska Airlines concedes that overseas flights generally bring "value for Seattle, the people who live here and the businesses," said Joe Sprague, senior vice president of communications. "It can be positive for Alaska as well. Those airlines need feed" traffic to fill the big overseas planes, he said.

But a lot of the markets Delta is entering "have nothing to do with international flights," added Andrew Harrison, Alaska's Airlines' senior vice president of planning and revenue management. "Palm Springs, Tucson and Juneau probably only have a handful of international passengers."

Seattle's business community is divided. The Port of Seattle, the county agency that runs Sea-Tac, is "delighted" by Delta's expansion, said Tom Albro, a board commissioner. The added landing fees and passengers are good for the airport, he said, and the additional overseas flights will foster economic growth and help business travelers who work for local companies such as Starbucks Corp. SBUX -0.15% , Microsoft Corp.MSFT +1.27% , Amazon.com Inc. AMZN -0.34% and Boeing Co.

Maud Daudon, chief executive of the Seattle Metropolitan Chamber of Commerce, said she hopes the two carriers "find a way to work together compatibly." Delta's international flights fill a need, she said, but Alaska Airlines "is our crown jewel." She called it a "terrific airline and a great civic contributor."

The two airlines have kept their code-sharing agreement in place, although they have recently removed each other's codes from directly competing flights. Both companies declined to say when the agreement expires or whether they are considering an early termination.

Alaska Airlines, which has frequent-flier tie-ins with a dozen big airlines world-wide, also has a long-standing code-sharing arrangement with American Airlines Group Inc.AAL -1.23% Last year, it received $235 million from Delta passengers flying on Alaska Airlines planes and $165 million from American passengers flying on its aircraft.

Alaska Airlines has started moving closer to American. In February, the two strengthened their relationship by allowing American to place its code on 22 additional Alaska Airlines routes and Alaska Airlines to place its code on 19 more American routes. "We've been talking to them about how we might work together [more closely] in the future," said Alaska's Mr. Sprague.

What I truly find odd - why did DL not simply expand the codeshare/marketing? It would seem that a partnership would work out better in the long run for both. I wonder - what happened? I can't see DL wanting to purchase AS, as there would not be enough traffic to Alaska on a single carrier to support the routes (assuming the merger would pass DOJ inspection).

What I truly find odd - why did DL not simply expand the codeshare/marketing? It would seem that a partnership would work out better in the long run for both. I wonder - what happened? I can't see DL wanting to purchase AS, as there would not be enough traffic to Alaska on a single carrier to support the routes (assuming the merger would pass DOJ inspection).

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Well, the word seems to be that AS was unable/unwilling to provide the volume of codeshare seats that DL wanted or at least at the prices DL wanted.

Well, the word seems to be that AS was unable/unwilling to provide the volume of codeshare seats that DL wanted or at least at the prices DL wanted.

David

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OK, here comes a dumb question (and I truly don't know the answer, please do to throw rotten fruit or vegetables). AS allows DL to sell seats as DL as DL Flt 1234 (say SEA - ANK to pick random choices). I understand DL can say "we offer a flight SEA - ANK" serviced by AS. If the seat is on a 006 ticket, I'm assuming DL gets a percentage (since they sold/issued the ticket), but how much? Can it be much more than then old 10% offered to ticket agents (which, ironically, DL was the first to slash). Or does DL get something more? If there is a demand for another flight, I can see DL/AS saying "hey, we need more metal" without that creating problems. Obviously I am missing something (what DL is getting paid? what metal AS will put on the route? the fact that AS/DL don't have a JV?). Help me out - I would honestly like to know (I have to admit complete ignorance here).

In a recent article, the Wall Street Journal cast its gaze on a dust-up in Seattle between Alaska Airlines and Delta Air Lines. Journal reporter Susan Carey does a good job on the metrics between the two airlines at Sea-Tac airport, including a few of the initiatives to win passengers as Delta works to establish an international hub smack in the middle of Alaska’s primary hub.

At the height of the summer travel season, the “Battle for Seattle” is yielding rich rewards for Alaska travelers, especially those in Fairbanks and Juneau.

In Anchorage, Delta has beefed up its Anchorage-Seattle schedule to three flights daily. Additionally, Delta offers nonstop service to Atlanta, Salt Lake City and Minneapolis from Anchorage. While Delta's Anchorage-Seattle flights put pressure on Alaska Airlines to keep fares low, rival JetBlue Airways is still the price leader on the route, with fares as low as $253 roundtrip, starting on Aug. 16. JetBlue drops the rate further to $196 roundtrip beginning Sept. 11.

In Fairbanks and Juneau, the single Delta flight each day has essentially cut the fare to Seattle in half. From Fairbanks, the nonstop flight to Seattle is selling for $122 each way between now and the last flight on Aug. 31. There's a two-week advance purchase to get the best fare.

It’s the same price to fly from Juneau to Seattle: $122 each way, between now and Aug. 30. Between Juneau and Seattle, Alaska Airlines has matched the fare. In Fairbanks, it's come close.

Without Delta’s competitive pressure, flights between Juneau and Seattle and between Fairbanks and Seattle would be twice as costly.

It’s not just about the price, though. Alaska Airlines has developed a loyal following in the Last Frontier through its Club 49 program. The program is free to Alaska residents and allows for two checked bags, a 30 percent last-minute discount in the form of two one-way vouchers and access to weekly fare sales to select destinations.

And when Delta announced these new services to Seattle, Alaska Airlines announced it was offering double mileage from Anchorage, Juneau and Fairbanks to Seattle. If you were a Club 49 traveler, you automatically were enrolled.

Delta responded by offering two free checked bags for Alaska residents, a $25 voucher towards an “Economy Comfort” ticket and a matching 30 percent discount for a full coach ticket. Delta also is offering travelers who enroll in the program “instant” Silver Medallion status in the SkyMiles program for 60 days.

Delta also is offering double miles between Anchorage and Seattle -- but only for residents of Washington state.

Delta’s increased service in Seattle is yielding great prices beyond the Pacific Northwest. Here are some examples:

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